ChinaDaily Briefs

China: AIA Group Ltd, Haier Electronics Group Co, Yatsen Holding, JD Health, Alibaba Group, Xpeng Motors, Beijing Kuaishou Technology Co Ltd, Jinke Smart Services, Tencent Holdings and more

In today’s briefing:

  • Will Index Providers Turn HK Into an Emerging Market? What Would Happen?
  • Haier Electric (1169 HK): The “H-Share” Guessing Game
  • Yatsen IPO – Pricey but It Comes with Strong Investor Backing
  • JD Health: Examining the Infant
  • Alibaba: Crime and Punishment
  • Xpeng (XPEV.US): New Star Rising
  • Kuaishou IPO: Advertising and E-Commerce Businesses to Drive Future Growth
  • JD Health (京东健康) Pre-IPO – Updates from PHIP – Fine-Tuning Forecasts
  • Jinke Smart Services (金科智慧服务) IPO Trading – Demand and Valuation = Muted Near-Term Performance
  • Tencent – This Deal Keeps Rolling Along

Will Index Providers Turn HK Into an Emerging Market? What Would Happen?

By Travis Lundy

Late Friday the 13th UK time, Sky News carried an article titled “China’s hostile meddling threatens Hong Kong market demotion.” 

There has been a lot of ink (and angst) spilled about the National Security Law and its effect on foreign businesses and this article was mostly about something else. The headline is somewhat deceiving – 65% of the article by wordcount is about the main subject of the article – a man named Mark Makepeace. 

This makes the article and its embedded commentary all the more interesting. Mark Makepeace was, until last year, the CEO of index provider FTSE Russell which he had effectively helped spin off from the LSE and the FT as FTSE International in 1995.

His comments, conveyed occasioned by an interview related to the launch of his new book “FTSE: The Inside Story” are worth reading. 

This story gets treatment because of the considerable amount of feedback and number of questions I got back about this over the weekend – something which surprised me.

Haier Electric (1169 HK): The “H-Share” Guessing Game

By David Blennerhassett

Back on the 19 December 2019, following a brief suspension pursuant to the Takeovers Code,  Haier Electronics Group Co (1169 HK) (HEG) announced its parent, Haier Smart Home (600690 CH) (HSH) was contemplating taking Haier private with newly issued Hong Kong shares, implying HSH was seeking an H-share listing, either first, or concurrent with the share swap.

A little over seven months later, HEG announced a pre-conditional Scheme such that HEG shareholder will receive 1.6 new HSH H shares plus HK$1.95 in cash. A 632-page Application Proof for the listing of HSH H-shares has been lodged. This will be a listing by introduction.

The pre-condition (HSH’s shareholders and CSRC approval) were fulfilled on the 1 September.

The Scheme Document has now been despatched – all 1,052 pages of it. The Court Meeting/SGM will be held on the 9 December, with the expected listing of the HSH H shares on the 22 December. The IFA (Somerley) considers the Offer to be fair & reasonable.

The Valuation Advisor (Platinum Advisors) has bumped the mid-point of the Offer Consideration to $38.03, up from $31.51 in late July. That revised assessment covers global peers, SoTPs, and direct comparables. HSH is up 51%/73% since the deal transaction was floated in December, and confirmed in July. HEG is up 62%/36% during the same time frame.

This mid-point assessment is just a valuer’s opinion. There is no guarantee this is where the Hs will trade. 

And that is the key question: where will the unlisted HSH H-shares trade with respect to the HSH A-shares? 

More below the fold.

Yatsen IPO – Pricey but It Comes with Strong Investor Backing

By Sumeet Singh

Yatsen Holding aims to raise around upto US$617m in its US IPO. The company is backed by Hillhouse, Tencent and Tiger Global. 

Yatsen was founded in 2016 and has since then launched three color cosmetics and skincare brands. Together, these brands have served 23.4m customers in 2019. According to the CIC report, Perfect Diary became the top color cosmetics brand in China in terms of online retail sales in 2019.

Its revenue increased by 4.7x in 2019 and was up 73% YoY over 9M20. The increase in revenue was driven by a 2.4x increase in its customer base in 2019 and another 50% YoY growth over 9M20. Yatsen operates a DTC model and does most of its marketing through its network of 15,000 KOLs. 

On the flip side, growth for its biggest brand slowed down considerably over 9M20. At the same time, its selling and marketing expenses have ballooned leading to the company again reporting losses over 9M20. There is also the case of its founders repeatedly selling shares to the company.

In terms of valuation, the company hasn’t generated consistent profits, hence, one can only compare it on EV/Sales basis, on which measure it looks alright. However, the timing of future profitability remains uncertain given the turnaround in selling and marketing expenses in FY20, the continued offline expansion and the company’s growing penchant for acquisitions.

Link to my previous note:

Yatsen Pre-IPO – Growing Fast but Slowing Down

JD Health: Examining the Infant

By Kemp Dolliver, CFA

The development of a leading online healthcare services business not only is a critical component of JD Health’s strategy, but also a key support to the rumored listing valuation of US$20 billion. In contrast with the retail pharmacy business, the company’s online healthcare services segment is in its infancy. In fact, the industry has yet to generate profits. This Insight takes a ground-level view of the online healthcare services sector using academic research and competitors’ data to provide tools to evaluate JD Health’s and its peers’ execution.

Alibaba: Crime and Punishment

By Supun Walpola

On the 10th of November, the State Administration for Industry and Commerce (SAIC) issued a draft legislature on the “Guidelines on Anti-monopoly in the Field of Platform Economy”. Following the news, Alibaba Group (BABA US)’s share price fell by around 12% over the course of the last week, despite the company’s record-smashing Singles’ Day sales. In this note, we take a look at how the new anti-monopoly regulations would affect Alibaba. 

Xpeng (XPEV.US): New Star Rising

By Victoria Li

Xpeng is our Top Buy among China’s EV makers. Why? Because

1)Xpeng’s flagship model is the best product so far among peers;

2)The company is well positioned into high growth potential niche market;

3)Its high input on R&D secures one new model launching per year in the future;

4) Low cashflow risk during company ramp up period due to its good cost control;

5) speeding up demand growth of China’s EV demand.

By using Tesla’s peak P/S rate of 16x happened when it net profit turned positive, Xpeng’s fair value stands at US$71 for the next 12 months.

Kuaishou IPO: Advertising and E-Commerce Businesses to Drive Future Growth

By Shifara Samsudeen, ACMA, CGMA

ByteDance’s Chinese rival Beijing Kuaishou Technology Co Ltd (1496219D CH)  has filed for an IPO to list its shares on the Hong Kong Stock Exchange ahead of its rival Douyin. The company aims to raise up to US$5bn at a rumoured valuation of over US$50bn.

Kuaishou’s platform offers its users to create content through short videos and livestreams as well as sell and purchase products. On the other hand, it allows businesses to advertise and sell their products to the users of the platform.

China has the world’s largest internet population which accounted for about 23% of mobile internet users globally. The internet users in China have been increasingly spending time on video-based social and entertainment platforms.

These short video and live streaming platforms offer monetisation opportunities through virtual gifting and online marketing services. According to iResearch, both virtual gifting and mobile advertising through short videos and livestreaming will grow at a CAGR of 19.9% and 33.7% respectively through 2020-25E.

The company generates a majority of its revenues from live streaming (through virtual gifting) however, online marketing services and other services (e-commerce and other services) have been growing at higher rates over the last two years which we believe should drive future growth for Kuaishou.

In this insight, we examine the company’s business model, the industry and the revenue channels. We will be covering the company’s financials in detail in a follow-up insight.

JD Health (京东健康) Pre-IPO – Updates from PHIP – Fine-Tuning Forecasts

By Zhen Zhou, Toh

JD Health (JDH HK) is looking to raise about US$3bn in its upcoming Hong Kong IPO.

JDH’s retail pharmacy and online healthcare services form a strong, closed loop, end-to-end healthcare ecosystem that is well-positioned to benefit from the digitalization of China’s healthcare system. It has an extensive network of online and offline pharmacies which is expanding into offering more online healthcare services. Revenue has been strong in the past three years and it has accelerated further due to COVID-19. 

We will go through the new data provided and share our thoughts and fine tune our forecasts and valuation model.

Our previous coverage of the IPO:

Jinke Smart Services (金科智慧服务) IPO Trading – Demand and Valuation = Muted Near-Term Performance

By Zhen Zhou, Toh

Jinke Smart Services (9666 HK) raised about US$767m by pricing its IPO at HK$44.70 per share, exactly at the midpoint of the price range. 

JKS is the property management arm of Jinke Property Group. As of December 2019, JKS has 754 property management projects with a total contracted GFA of 248.6m sqm. Out of that, 417 projects are currently under management which is about 120.5m sqm. 

In this note, we will look at the deal dynamics and provide a table with implied valuation at different share price levels.

Our previous coverage of the IPO:

Tencent – This Deal Keeps Rolling Along

By Thomas J. Monaco

*Another Positive Update Ahead of AGM: The Australia Securities & Investments Commission (ASIC) recently released its second report on the Buy Now Pay Later (BNPL) space, and the findings appear to be similar to its first report. This is quite positive for the shares of Afterpay Touch (APT.AU) [Afterpay], where Tencent Holdings (700.HK) [Tencent] holds what is likely to be a growing 5% stake. The AGM for Afterpay is on November 17th; and  

*More Magic Fairy Dust: Tencent continues to hit it out of the park with its Afterpay stake. In addition to a superb return on investment of 394% over the past five plus months since the stake announcement, this alliance with Australia’s premier financial technology BNPL company is paying dividends to Tencent in numerous other ways. 

Before it’s here, it’s on Smartkarma